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ch7
Student:
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1. Pigskin Co., a U.S. corporation, sold inventory on credit to
a British company on April 8, 2008. Pigskin received payment of
35,000 British pounds on May 8, 2008. The exchange rate was $1 =
0.65 on April 8 and $1 = 0.70 on May 8. What amount of foreign
exchange gain or loss should be recognized? (round to the nearest
dollar) A. $10,500 loss B. $10,500 gain C. $1,750 loss D. $3,846
loss E. No gain or loss should be recognized
Norton Co., a U.S. corporation, sold inventory on December 1,
2008, with payment of 10,000 British pounds to be received in sixty
days. The pertinent exchange rates were as follows:
2. For what amount should Sales be credited on December 1? A.
$5,500 B. $16,949 C. $18,182 D. $17,241 E. $16,667
3. What amount of foreign exchange gain or loss should be
recorded on December 31? A. $300 gain B. $300 loss C. $0 D. $941
loss E. $941 gain
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4. What amount of foreign exchange gain or loss should be
recorded on January 30? A. $1,516 gain B. $1,516 loss C. $575 loss
D. $500 loss E. $500 gain
Brisco Bricks purchases raw material from its foreign supplier,
Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency
units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end.
The pertinent exchange rates were as follows:
5. For what amount should Brisco's Accounts Payable be credited
on May 8? A. $2,500,000 B. $2,440,000 C. $1,600,000 D. $1,639,344
E. $1,666,667
6. How much Foreign Exchange Gain or Loss should Brisco record
on May 31? A. $2,520,000 gain B. $20,000 gain C. $20,000 loss D.
$80,000 gain E. $80,000 loss
7. How much US $ will it cost Brisco to finally pay the payable
on June 7? A. $1,666,667 B. $2,440,000 C. $2,520,000 D. $2,500,000
E. $2,400,000
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8. On June 1, CamCo received a contract to sell inventory for
500,000. The sale would take place in 90 days. CamCo immediately
signed a 90-day forward contract to sell the yen as soon as they
are received. The spot rate on June 1 was $1 = 240 and the 90-day
forward rate was $1 = 234. At what amount would CamCo record the
Forward Contract on June 1? A. $2,083 B. $0 C. $2,110 D. $2,532 E.
$2,137
9. Belsen purchased inventory on December 1, 2008. Payment of
200,000 stickles was to be made in sixty days. Also on December 1,
Belsen signed a contract to purchase 200,000 in sixty days. The
spot rate was $1 = 2.80 and the 60-day forward rate was $1 = 2.60.
On December 31, the spot rate was $1 = 2.90 and the 30-day forward
rate was $1 = 2.62. Assume an annual interest rate of 12% and a
fair value hedge. The present value for one month at 12% is .9901.
In the journal entry to record the establishment of a forward
exchange contract, at what amount should the Forward Contract
account be recorded on December 1? A. $71,428.57 B. $76,923.08 C.
$5,549.51 D. $587.20 E. $0, since there is no cost, there is no
value for the contract at this date
10. Meisner Co. ordered parts costing 100,000 for a foreign
supplier on May 12 when the spot rate was $.24 per stickle. A
one-month forward contract was signed on that date to purchase
100,000 at a forward rate of $.25 per stickle. On June 12, when the
parts were received and payment was made, the spot rate was $.28
per stickle. At what amount should inventory be reported? A. $0 B.
$28,000 C. $24,200 D. $25,000 E. $2,000
Car Corp. (a U.S.-based company) sold parts to a Korean customer
on December 16, 2008, with payment of 10 million Korean won to be
received on January 15, 2009. The following exchange rates
applied:
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11. Assuming a forward contract was not entered into, what would
be the net impact on Car Corp.'s 2008 income statement related to
this transaction? A. $500 (gain) B. $500 (loss) C. $200 (gain) D.
$200 (loss) E. $- 0 -
12. Assuming a forward contract was entered into, what would be
the net impact on Car Corp.'s 2008 income statement related to this
transaction? Assume an annual interest rate of 12% and a fair value
hedge. The present value for one month at 12% is .9901. A. $700
(gain) B. $700 (loss) C. $300 (gain) D. $300 (loss) E. $295.05
(loss)
13. Assuming a forward contract was entered into on December 16,
what would be the net impact on Car Corp.'s 2009 income statement
related to this transaction? A. $500 (gain) B. $100 (loss) C. $200
(gain) D. $200 (loss) E. $0
14. Mills Inc. had a receivable from a foreign customer that is
due in the local currency of the customer (stickles). On December
31, 2008, this receivable for 200,000 was correctly included in
Mills' balance sheet at $132,000. When the receivable was collected
on February 15, 2009, the U.S. dollar equivalent was $144,000. In
Mills' 2009 consolidated income statement, how much should have
been reported as a foreign exchange gain? A. $0 B. $36,000 C.
$48,000 D. $10,000 E. $12,000
15. A spot rate may be defined as A. The price a foreign
currency can be purchased or sold today B. The price today at which
a foreign currency can be purchased or sold in the future C. The
forecasted future value of a foreign currency D. The U.S. dollar
value of a foreign currency E. The Euro value of a foreign
currency
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16. The forward rate may be defined as A. The price a foreign
currency can be purchased or sold today B. The price today at which
a foreign currency can be purchased or sold in the future C. The
forecasted future value of a foreign currency D. The U.S. dollar
value of a foreign currency E. The Euro value of a foreign
currency
17. Which statement is true regarding a foreign currency option?
A. A foreign currency option gives the holder the obligation to buy
or sell foreign currency in the future B. A foreign currency option
gives the holder the obligation only sell foreign currency in the
future C. A foreign currency option gives the holder the obligation
to only buy foreign currency in the future D. A foreign currency
option gives the holder the right but not the obligation to buy or
sell foreign currency in the future E. A foreign currency option
gives the holder the obligation to buy or sell foreign currency in
the future at the spot rate
18. A U.S. company sells merchandise to a foreign company
denominated in U.S. dollars. Which of the following statements is
true? A. If the foreign currency appreciates, a foreign exchange
gain will result B. If the foreign currency depreciates, a foreign
exchange gain will result C. No foreign exchange gain or loss will
result D. If the foreign currency appreciates, a foreign exchange
loss will result E. If the foreign currency depreciates, a foreign
exchange loss will result
19. A U.S. company sells merchandise to a foreign company
denominated in the foreign currency. Which of the following
statements is true? A. If the foreign currency appreciates, a
foreign exchange gain will result B. If the foreign currency
depreciates, a foreign exchange gain will result C. No foreign
exchange gain or loss will result D. If the foreign currency
appreciates, a foreign exchange loss will result E. Any gain or
loss will be included in comprehensive income
20. A U.S. company buys merchandise from a foreign company
denominated in U.S. dollars. Which of the following statements is
true? A. If the foreign currency appreciates, a foreign exchange
gain will result B. If the foreign currency depreciates, a foreign
exchange gain will result C. No foreign exchange gain or loss will
result D. If the foreign currency appreciates, a foreign exchange
loss will result E. Any gain or loss will be included in
comprehensive income
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21. A U.S. company buys merchandise from a foreign company
denominated in the foreign currency. Which of the following
statements is true? A. If the foreign currency appreciates, a
foreign exchange gain will result B. If the foreign currency
depreciates, a foreign exchange loss will result C. No foreign
exchange gain or loss will result D. If the foreign currency
appreciates, a foreign exchange loss will result E. Any gain or
loss will be included in comprehensive income
22. SFAS 133 provides guidance for hedges of all the following
sources of foreign exchange risk except A. Recognized foreign
currency denominated assets and liabilities B. Unrecognized foreign
currency firm commitments C. Forecasted foreign currency
denominated transactions D. Net investment in foreign operations E.
Deferred foreign currency gains and losses
23. All of the following data may be needed to determine the
fair value of a forward contract at any point in time except A. The
forward rate when the forward contract was entered into B. The
current forward rate for a contract that matures on the same date
as the forward contract entered into C. The future spot rate D. A
discount rate E. The company's incremental borrowing rate
24. A forward contract may be used for which of the following?
1) A fair value hedge of an asset. 2) A cash flow hedge of an
asset. 3) A fair value hedge of a liability. 4) A cash flow hedge
of a liability. A. 1 and 3 B. 2 and 4 C. 1 and 2 D. 1, 3 and 4 E.
1, 2, 3 and 4
25. A company has a discount on a forward contract for an asset.
How is the discount recognized over the life of the contract? A. It
is charged to a deferred credit B. It is charged to a deferred
asset C. It is charged to accumulated other comprehensive income D.
It increases sales E. It decreases sales
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26. A speculative derivative would be similar to which type of
hedge? A. An option designated as a cash flow hedge B. An option
designated as a fair value hedge C. A forward contract designated
as a cash flow hedge D. A forward contract designated as a fair
value hedge E. A speculative option not designated
27. Which of the following statements is true concerning hedge
accounting? A. Hedges of foreign currency firm commitments are used
for future sales only B. Hedges of foreign currency firm
commitments are used for future purchases only C. Hedges of foreign
currency firm commitments are used for current purchases or sales
D. Hedges of foreign currency firm commitments are used for future
sales or purchases E. Hedges of foreign currency firm commitments
are speculative in nature
28. All of the following hedges are used for future
purchase/sale transactions except A. Forward contracts used as a
fair value hedge of a firm commitment B. Options used as a fair
value hedge of a firm commitment C. Hedge of a foreign currency
denominated asset D. Forward cash flow hedges of a forecasted
transaction E. Forward contracts used to hedge a foreign currency
denominated liability
On December 1, 2007, Keenan Company, a U.S. firm, sold
merchandise to Velez Company of Spain for 150,000 euro. Payment is
due on February 1, 2008. Keenan entered into a forward exchange
contract on December 1, 2007, to deliver 150,000 euro on February
1, 2008 for $.97. Keenan chose to use a foreign currency option to
hedge this foreign currency asset designated as a cash flow hedge.
Relevant exchange rates follow:
29. Compute the value of the foreign currency option at December
1, 2007. A. $6,000 B. $4,500 C. $3,000 D. $7,500 E. $1,500
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30. Compute the value of the foreign currency option at December
31, 2007. A. $6,000 B. $4,500 C. $3,000 D. $7,500 E. $1,500
31. Compute the value of the foreign currency option at February
1, 2008. A. $6,000 B. $4,500 C. $3,000 D. $7,500 E. $1,500
32. Compute the U.S. dollars received on February 1, 2008. A.
$138,000 B. $136,500 C. $145,500 D. $141,000 E. $142,500
33. Which of the following approaches is used in the United
States in accounting for foreign currency transactions? A.
One-transaction perspective; defer foreign exchange gains and
losses B. Two-transaction perspective; accrue foreign exchange
gains and losses C. Three-transaction perspective; defer foreign
exchange gains and losses D. One-transaction perspective; accrue
foreign exchange gains and losses E. Two-transaction perspective;
defer foreign exchange gains and losses
34. When a U.S. company purchases parts from a foreign company,
which of the following will result in no foreign exchange gain or
loss? A. The transaction is denominated in U.S. dollars B. The
transaction resulted in an extraordinary gain C. The transaction
resulted in an extraordinary loss D. The foreign currency
appreciated in value relative to the U.S. dollar E. The foreign
currency depreciated in value relative to the U.S. dollar
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35. Alpha, Inc., a U.S. company, had a receivable from a
customer that was denominated in pesos. On December 31, 2008, this
receivable for 75,000 pesos was correctly included in Alpha's
balance sheet at $8,000. The receivable was collected on March 2,
2009, when the U.S. equivalent was $6,900. How much foreign
exchange gain or loss will Alpha record on the income statement for
the year ended December 31, 2009? A. $1,100 loss B. $1,100 gain C.
$6,900 loss D. $6,900 gain E. $8,000 gain
On April 1, 2007, Shannon Company, a U.S. company, borrowed
100,000 euros from a foreign lender by signing an interest-bearing
note due April 1, 2008. The dollar value of the loan was as
follows:
36. How much foreign exchange gain or loss should be included in
Shannon's 2007 income statement? A. $3,000 gain B. $3,000 loss C.
$6,000 gain D. $6,000 loss E. $7,000 gain
37. How much foreign exchange gain or loss should be included in
Shannon's 2008 income statement? A. $1,000 gain B. $1,000 loss C.
$2,000 gain D. $2,000 loss E. $8,000 loss
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38. Angela, Inc., a U.S. company, had a euro receivable from
exports to Spain and a British pound payable resulting from imports
from England. Angela recorded foreign exchange gain related to both
its euro receivable and pound payable. Did the foreign currencies
increase or decrease in dollar value from the date of the
transaction to the settlement date?
A. A above B. B above C. C above D. D above E. E above
39. Frankfurter Company, a U.S. company, had a ruble receivable
from exports to Russia and a euro payable resulting from imports
from Italy. Frankfurter recorded foreign exchange loss related to
both its ruble receivable and euro payable. Did the foreign
currencies increase or decrease in dollar value from the date of
the transaction to the settlement date?
A. A above B. B above C. C above D. D above E. E above
Parker Corp., a U.S. company, had the following foreign currency
transactions during 2009: (1.) Purchased merchandise from a foreign
supplier on July 5, 2009 for the U.S. dollar equivalent of $80,000
and paid the invoice on August 3, 2009 at the U.S. dollar
equivalent of $82,000. (2.) On October 1, 2009 borrowed the U.S.
dollar equivalent of $872,000 evidenced by a non-interest-bearing
note payable in euros on October 1, 2009. The U.S. dollar
equivalent of the note amount was $860,000 on December 31, 2009 and
$881,000 on October 1, 2010.
40. What amount should be included as a foreign exchange gain or
loss from the two transactions for 2009? A. $2,000 loss B. $2,000
gain C. $10,000 gain D. $14,000 loss E. $14,000 gain
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41. What amount should be included as a foreign exchange gain or
loss from the two transactions for 2010? A. $9,000 loss B. $9,000
gain C. $11,000 loss D. $21,000 loss E. $21,000 gain
Winston Corp., a U.S. company, had the following foreign
currency transactions during 2008: (1.) Purchased merchandise from
a foreign supplier on July 16, 2008 for the U.S. dollar equivalent
of $47,000 and paid the invoice on August 3, 2008 at the U.S.
dollar equivalent of $54,000. (2.) On October 15, 2008 borrowed the
U.S. dollar equivalent of $315,000 evidenced by a
non-interest-bearing note payable in euros on October 15, 2008. The
U.S. dollar equivalent of the note amount was $295,000 on December
31, 2008 and $299,000 on October 15, 2009.
42. What amount should be included as a foreign exchange gain or
loss from the two transactions for 2008? A. $9,000 loss B. $9,000
gain C. $11,000 loss D. $13,000 gain E. $14,000 gain
43. What amount should be included as a foreign exchange gain or
loss from the two transactions for 2009? A. $1,000 loss B. $1,000
gain C. $2,000 loss D. $4,000 gain E. $4,000 loss
44. Williams, Inc., a U.S. company, has a Japanese yen account
receivable resulting from an export sale on March 1 to a customer
in Japan. The exporter signed a forward contract on March 1 to sell
yen and designated it as a cash flow hedge of a recognized
receivable. The spot rate was $.0094 and the forward rate was
$.0095. Which of the following did the U.S. exporter report in net
income? A. Discount revenue B. Premium revenue C. Discount expense
D. Premium expense E. Both a discount revenue and a premium
expense
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45. Larson Company, a U.S. company, has an India rupee account
receivable resulting from an export sale on September 7 to a
customer in India. Larson signed a forward contract on September 7
to sell rupees and designated it as a cash flow hedge of a
recognized receivable. The spot rate was $.023 and the forward rate
was $.021. Which of the following did the U.S. exporter report in
net income? A. Discount revenue B. Premium revenue C. Discount
expense D. Premium expense E. Both a discount revenue and a premium
expense
46. Primo Inc., a U.S. company, ordered parts costing 100,000
rupee from a foreign supplier on July 7 when the spot rate was
$.025 per rupee. A one-month forward contract was signed on that
date to purchase 100,000 rupee at a rate of $.027. The forward
contract is properly designated as a fair value hedge of the
100,000 rupee firm commitment. On August 7, when the parts are
received, the spot rate is $.028. At what amount should the parts
inventory be carried on Primo's books? A. $2,000 B. $2,100 C.
$2,500 D. $2,700 E. $2,800
47. Lawrence Company, a U.S. company, ordered parts costing
1,000,000 Thailand bahts from a foreign supplier on July 7 when the
spot rate was $.025 per baht. A one-month forward contract was
signed on that date to purchase 1,000,000 bahts at a rate of $.027.
The forward contract is properly designated as a fair value hedge
of the 1,000,000 baht firm commitment. On August 7, when the parts
are received, the spot rate is $.028. What is the amount of
accounts payable that will be paid at this date? A. $20,000 B.
$20,100 C. $25,000 D. $27,000 E. $28,000
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48. On December 1, 2009, Joseph Company, a U.S. company, entered
into a three-month forward contract to purchase 50,000 pesos on
March 1, 2010. The following U.S. dollar per peso exchange rates
apply:
Joseph's incremental borrowing rate is 12 percent. The present
value factor for two months at an annual interest rate of 12
percent is .9803. Which of the following is included in Joseph's
December 31, 2009 balance sheet for the forward contract? A.
$5,146.58 asset B. $5,146.58 liability C. $500 liability D. $490.15
asset E. $490.15 liability
49. On April 1, Quality Corporation, a U.S. company, expects to
order merchandise from a German supplier in three months,
denominating the transaction in euros. On April 1, the spot rate is
$1.19 per euro and Quality enters into a three-month forward
contract to purchase 400,000 euros at a rate of $1.20. At the end
of three months, the spot rate is $1.21 per euro and Quality orders
and receives the merchandise, paying 400,000 euros. What are the
effects on net income from these transactions? A. $4,000 Discount
Expense plus a $4,000 negative Adjustment to Net Income when the
merchandise is received B. $4,000 Discount Expense plus an $8,000
negative Adjustment to Net Income when the merchandise is received
C. $4,000 Premium Expense plus a $4,000 negative Adjustment to Net
Income when the merchandise is received D. $8,000 Premium Expense
plus a $4,000 positive Adjustment to Net Income when the
merchandise is received E. $8,000 Discount Expense plus an $8,000
positive Adjustment to Net Income when the merchandise is
received
50. On August 31, Ram Corporation, a U.S. company, expects to
order merchandise from a German supplier in three months,
denominating the transaction in euros. On August 31, the spot rate
is $1.19 per euro and Quality enters into a three-month forward
contract to purchase 600,000 euros at a rate of $1.20. At the end
of three months, the spot rate is $1.21 per euro and Ram orders and
receives the merchandise, paying 600,000 euros. What are the
effects on net income from these transactions? A. $6,000 Discount
Expense plus a $6,000 negative Adjustment to Net Income when the
merchandise is sold B. $6,000 Discount Expense plus a $12,000
negative Adjustment to Net Income when the merchandise is sold C.
$6,000 Premium Expense plus a $6,000 negative Adjustment to Net
Income when the merchandise is sold D. $12,000 Premium Expense plus
a $6,000 positive Adjustment to Net Income when the merchandise is
sold E. $12,000 Discount Expense plus an $12,000 positive
Adjustment to Net Income when the merchandise is sold
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51. Woolsey Corporation, a U.S. company, expects to order goods
from a British supplier at a price of 250,000 pounds, with delivery
and payment to be made on October 24. On July 24, Woolsey purchased
a three-month call option for 250,000 British pounds and designated
this option as a cash flow hedge of a forecasted foreign currency
transaction. The following exchange rates apply:
What amount will Woolsey include as an option expense in net
income during the period July 24 to October 24? A. $4,000 B. $5,000
C. $10,000 D. $12,000 E. $14,000
52. Atherton, Inc., a U.S. company, expects to order goods from
a foreign supplier at a price of 100,000 lira, with delivery and
payment to be made on April 17. On January 17, Atherton purchased a
three-month call option on 100,000 lira and designated this option
as a cash flow hedge of a forecasted foreign currency transaction.
The following exchange rates apply:
What amount will Atherton include as an option expense in net
income during the period January 17 to April 17? A. $4,000 B.
$4,260 C. $4,340 D. $5,000 E. $5,260
On May 1, 2007, Mosby Company received an order to sell a
machine to a customer in Canada at a price of 2,000,000 Mexican
pesos. The machine was shipped and payment was received on March 1,
2008. On May 1, 2007, Mosby purchased a put option giving it the
right to sell 2,000,000 pesos on March 1, 2008 at a price of
$190,000. Mosby properly designates the option as a fair value
hedge of the peso firm commitment. The option cost $3,000 and had a
fair value of $3,200 on December 31, 2007. The following spot
exchange rates apply:
Mosby's incremental borrowing rate is 12 percent and the present
value factor for two months at a 12 percent annual rate is
.9803.
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53. What was the net impact on Mosby's 2007 income as a result
of this fair value hedge of a firm commitment? A. $1,760.60
decrease B. $1,960.60 decrease C. $1,000.00 decrease D. $1,760.60
increase E. $1,960.60 increase
54. What was the net impact on Mosby's 2008 income as a result
of this fair value hedge of a firm commitment? A. $1,760.60
decrease B. $2,500 increase C. $2,500 decrease D. $188,760.60
increase E. $188,760.60 decrease
55. What was the net increase or decrease in cash flow from
having purchased the foreign currency option to hedge this exposure
to foreign exchange risk? A. $0 B. $9,000 decrease C. $9,000
increase D. $2,000 increase E. $2,000 decrease
On March 1, 2007, Mattie Company received an order to sell a
machine to a customer in England at a price of 200,000 British
pounds. The machine was shipped and payment was received on March
1, 2008. On March 1, 2007, Mattie purchased a put option giving it
the right to sell 200,000 British pounds on March 1, 2008 at a
price of $380,000. Mattie properly designates the option as a fair
hedge of the pound firm commitment. The option cost $2,000 and had
a fair value of $2,200 on December 31, 2007. The following spot
exchange rates apply:
Mattie's incremental borrowing rate is 12 percent and the
present value factor for two months at a 12 percent annual rate is
.9803.
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56. What was the net impact on Mattie's 2007 income as a result
of this fair value hedge of a firm commitment? A. $1,660.40
decrease B. $1,760.60 decrease C. $2,240.40 decrease D. $1,660.40
increase E. $2,240.60 increase
57. What was the net impact on Mattie's 2008 income as a result
of this fair value hedge of a firm commitment? A. $379,760.60
decrease B. $8,360.60 increase C. $8,360.60 decrease D. $4,390.40
decrease E. $379,760.60 increase
58. What was the net increase or decrease in cash flow from
having purchased the foreign currency option to hedge this exposure
to foreign exchange risk? A. $0 B. $10,000 increase C. $10,000
decrease D. $20,000 increase E. $20,000 decrease
On October 1, 2007, Eagle Company forecasts the purchase of
inventory from a British supplier on February 1, 2008, at a price
of 100,000 British pounds. On October 1, 2007, Eagle pays $1,800
for a three-month call option on 100,000 pounds with a strike price
of $2.00 per pound. The option is considered to be a cash flow
hedge of a forecasted foreign currency transaction. On December 31,
2007, the option has a fair value of $1,600. The following spot
exchange rates apply:
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59. What journal entry should Eagle prepare on October 1,
2007?
A. A above B. B above C. C above D. D above E. E above
60. What journal entry should Eagle prepare on December 31,
2007?
A. A above B. B above C. C above D. D above E. E above
61. What is the amount of option expense for 2008 from these
transactions? A. $1,000 B. $1,600 C. $2,500 D. $2,600 E. $0
62. What is the amount of Adjustment to Accumulated Other
Comprehensive Income for 2008 from these transactions? A. $1,000 B.
$1,600 C. $1,800 D. $2,000 E. $2,600
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63. What is the amount of Cost of Goods Sold for 2008 as a
result of these transactions? A. $200,000 B. $195,000 C. $201,000
D. $202,600 E. $203,000
64. What is the 2008 effect on net income as a result of these
transactions? A. $195,000 B. $201,600 C. $201,000 D. $202,600 E.
$203,000
65. Yelton Co. just sold inventory for 80,000 lira, which Yelton
will collect in sixty days. Briefly describe a hedging transaction
Yelton could engage in to reduce its risk of unfavorable exchange
rates.
66. Where can you find exchange rates between the U.S. dollar
and most foreign currencies?
67. What is meant by the spot rate?
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68. How is the fair value of a Forward Contract determined under
SFAS 133?
69. What is the major assumption underlying the one-transaction
perspective?
70. What is meant by the term hedging?
71. How does a foreign currency forward contract differ from a
foreign currency option?
72. What factors create a foreign exchange gain?
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73. What happens when a U.S. company purchases goods denominated
in a foreign currency and the foreign currency depreciates?
74. What happens when a U.S. company purchases goods denominated
in a foreign currency and the foreign currency appreciates?
75. What happens when a U.S. company sells goods denominated in
a foreign currency and the foreign currency depreciates?
76. What happens when a U.S. company sells goods denominated in
a foreign currency and the foreign currency appreciates?
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77. Gaw Produce Co. purchased inventory from a Japanese company
on December 18, 2009. Payment of 400,000 was due on January 18,
2010. Exchange rates between the dollar and the yen were as
follows:
Required: Prepare all journal entries for Gaw Produce Co. in
connection with the purchase and payment.
78. Old Colonial Corp. (a U.S. company) made a sale to a foreign
customer on September 15, 2009, for 100,000 stickles. Payment was
received on October 15, 2009. The following exchange rates
applied:
Required: Prepare all journal entries for Old Colonial Corp. in
connection with this sale assuming that the company closes its
books on September 30 to prepare interim financial statements.
Coyote Corp. (a U.S. company in Texas) had the following series
of transactions in a foreign country during 2009. The appropriate
exchange rates during 2009 were as follows:
The appropriate exchange rates during 2009 were as follows:
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79. Prepare all journal entries in U.S. dollars along with any
December 31, 2009 adjusting entries. Coyote uses a perpetual
inventory system.
80. What amount will Coyote Corp. report on its 2009 financial
statements for Inventory?
81. What amount will Coyote Corp. report on its 2009 financial
statements for Cost of Goods Sold?
82. What amount will Coyote Corp. report on its 2009 financial
statements for Sales?
83. What amount will Coyote Corp. report on its 2009 financial
statements for Accounts Receivable?
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84. What amount will Coyote Corp. report on its 2009 financial
statements for Accounts Payable?
85. The beginning balance of cash was 50,000 pesos on January 1,
2009, translated at $.18 = $1. What amount will Coyote Corp. report
on its 2009 financial statements for Cash?
On November 10, 2008, King Co. sold inventory to a customer in a
foreign country. King agreed to accept 96,000 local currency units
(LCU) in full payment for this inventory. Payment was to be made on
February 1, 2009. On December 1, 2008, King entered into a forward
exchange contract wherein 96,000 LCU would be delivered to a
currency broker in two months. The two month forward exchange rate
on that date was 1 LCU = $.30. The spot rates and forward rates on
various dates were as follows:
The company's borrowing rate is 12%. The present value factor
for one month is .9901.
86. (A.) Assume this hedge is designated as a cash flow hedge.
Prepare the journal entries relating to the transaction and the
forward contract. (B.) Compute the effect on 2008 net income. (C.)
Compute the effect on 2009 net income.
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87. (A.) Assume this hedge is designated as a fair value hedge.
Prepare the journal entries relating to the transaction and the
forward contract. (B.) Compute the effect on 2008 net income. (C.)
Compute the effect on 2009 net income.
On October 1, 2009, a forward exchange contract was acquired
whereby Jarvis Co. was to pay 100,000 LCU in four months (on
February 1, 2010) and receive $78,000 in U.S. dollars. The spot and
forward rates for the LCU were as follows:
The company's borrowing rate is 12%. The present value factor
for one month is .9901.
88. Assuming this is a cash flow hedge, prepare journal entries
for this sales transaction and forward contract.
89. Assuming this is a fair value hedge, prepare journal entries
for this sales transaction and forward contract.
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90. On October 31, 2008, Darling Company negotiated a two-year
100,000 franc loan from a foreign bank at an interest rate of 3
percent per year. Interest payments are made annually on October 31
and the principal will be repaid on October 31, 2010. Darling
prepares U.S.-dollar financial statements and has a December 31
year-end. Prepare all journal entries related to this foreign
currency borrowing assuming the following:
91. For each of the following situations, select the best answer
concerning accounting for foreign currency transactions: (A)
Results in a foreign exchange gain. (B) Results in a foreign
exchange loss. (C) No foreign exchange gain or loss. _____1. Export
sale by a U.S. company denominated in dollars, foreign currency of
buyer appreciates. _____2. Export sale by a U.S. company
denominated in foreign currency, foreign currency of buyer
appreciates. _____3. Import purchase by a U.S. company denominated
in foreign currency, foreign currency of buyer appreciates. _____4.
Import purchase by a U.S. company denominated in dollars, foreign
currency of buyer appreciates. _____5. Import purchase by a U.S.
company denominated in foreign currency, foreign currency of buyer
depreciates. _____6. Import purchase by a U.S. company denominated
in dollars, foreign currency of buyer depreciates. _____7. Export
sale by a U.S. company denominated in dollars, foreign currency of
buyer depreciates. _____8. Export sale by a U.S. company
denominated in foreign currency, foreign currency of buyer
depreciates.